Charles Ellis Talks About Investor’s Blunders

Consuelo Mack recently interviewed index fund devotee and consultant Charles Ellis, author of “Winning the Loser’s Game.” Ellis also advises the Yale endowment which had 20 years of positive returns and returned 16% per year from 1998 to 2008. Ellis has written a new book entitled, The Elements of Investing “>”The Elements of Investing.”

Ellis began the interview talking about the importance of investors saving while they are earning money due to the difficulty catching up in later years.

Ellis commented on his early years in which he attempted to pick stocks. He also mentioned his friends who used active managers. He said they were, “triumphant, and then not.” Over time their results, with very few exceptions, would have been better if they had used index funds.

Ellis said Warren Buffett was one of the exceptions to investors who couldn’t beat the index. Ellis also said he had the good luck to own Berkshire Hathaway over several decades. Ellis commented on Buffett’s steady discipline of wise capital allocation.

Ellis said individuals working hard to generate returns all cancel each other out, which he likened to a tug of war with a rope and, “a complete waste of time.”

Ellis said there were very few investment firms worth investing with because they’ve been turned into commercial organizations. He mentioned the Capital Group, American Funds, Wellington Management in Boston, T. Rowe Price, and Vanguard as non-commercial investment organizations representing the best interests of their investors.

The conversation continued with Ellis talking about the importance of diversification over time, asset allocation, why investors should avoid esoteric areas (hedge funds, private capital, etc.) and stick to stocks and bonds, commodities as speculation (not investment), investor’s biggest blunders, investing in retirement, the role of a sophisticated financial system, and importance of the profit incentive.

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Disclaimer: It is very difficult to outperform a buy and hold strategy. Many investors have found themselves best served over long time horizons by investing regularly in a diversified portfolio of stocks or low cost, broadly diversified indexed stock funds. Information presented is based on analysis of past data and assessments by the Tactical Timing System model. Future performance may not reflect past performance. Profitable trades are not guaranteed. No system or methodology ensures stock market profits. Although accuracy is strived for, no guarantee is made regarding the accuracy of data presented. Nothing presented here should be considered investment advice, but merely the humble opinion of the author.